Test bank For Cost Accounting Test 1,
Cost Accounting Test 2, Cost
Accounting Test 3, Cost Accounting Test
4 (1st Edition by Farmer)
Value chain - ANSactivities that convert raw materials and other resources into finished goods
and services for use by consumers
T/F: A cash budget shows managers two things: when cash will be needed and how much will
be needed - ANSTrue
The equation for estimating cost is - ANSTC = F + VX
(TC = total costs)
(F = fixed costs)
(V = variable cost per unit of activity)
(X = volume of activity)
Traditional costing accumulates cost as follows: - ANS- identify actual direct materials
- identify actual direct labor
- apply overhead to production using a volume based driver (DL hours, machine hours, DL cost)
using either an overall plantwide rate or utilizing departmental rates
Value added activities - ANSactivities customers are willing to pay for because customers
believe the activities add value to the finished good or service
Independent variable - ANSAlways the volume of activity
Activity based costing accumulates cost as follows: - ANS- identify actual direct materials
- identify actual direct labor
- apply overhead to product using the various activities required for production to take place (for
each activity, an overhead rate is calculated based on the estimated overhead divided by the
activity, may include DL hours, machine hours, or DL costs)
Cash receipts - ANSthe inflow of cash from operations
Value chain activities - ANSResearch and Development (creation and development of new
ideas related to products and services)
,Design (the detailed development of engineering of products and services)
Purchasing (acquisition of goods and services required for production)
Production (the combination of materials, labor, and overhead to produce the product)
Marketing (making the product known to customers)
Distribution (the process of getting the product into the customers hands)
Customer Service (taking care of the buyer after the sale)
Dependent variable - ANSAlways the cost
(estimated cost always depends on the level of activity)
T/F: ABC goes much further than volume based drivers - ANSTrue
Cash disbursements - ANSthe outflow of cash from operations
T/F: the cash budget takes beginning cash, adds cash receipts, and subtracts cash
disbursements to get ending cash - ANSTrue
There are three similarities between traditional and ABC - ANS1. both use actual direct
materials and actual direct labor (this means comparing traditional to ABC focuses only on OH
applied to various products)
2. the amount of actual overhead is the same regardless of the method used
3. both rely on calculating overhead rates for various cost drivers
True or False: Variable costs are dependent on the level of activity and fixed costs are
independent of the level of activity - ANSTrue
Accounting Systems - ANSFinancial accounting and Cost accounting
True or False: The primary purpose of financial accounting is the preparation of the four
financial statements in accordance with GAAP, is focused on the past, and external in nature -
ANSTrue
True or False: Cost estimations provided by the cost accountant allow managers to make better
decisions when choosing among alternatives. - ANSTrue
,The difference between traditional costing and ABC - ANStraditional may have only one or two
OH rates where ABC may have dozens
Division - ANSan investment center within an organization
True or False: The primary purpose of Cost accounting is to provide managers of the company
with timely and relevant data and information about company costs, is not guided by GAAP, and
the focus is internal in nature and on the future rather than the past - ANSTrue
THREE methods to estimate cost behavior - ANSEngineering estimates
Account analysis
Statistical methods
Activity - ANSan action taken by man or machine to accomplish a task
Investment center - ANSa unit within the organization responsible for managing assets,
generating revenues, and controlling costs
T/F: an important aspect of an investment center and its day to day operations is an evaluation
of the performance of the managers in charge of each division/investment center - ANSTrue
T/F: managers may decide to drop a product if the costs have risen more than the revenue and
margins have dropped to unacceptable levels - ANSTrue
True or False: Managers often have to use their best estimate (judgment) of what is reasonable
when estimating costs - ANSTrue
True or False: The decisions made by managers relies heavily on the data and info provided by
cost accountants and owners of the business rely on accounting info provided through cost
accounting - ANSTrue
Who are the key financial players in a company? - ANSChief Financial Officer
Treasurer
Controller
Internal Auditor
Cost Accountant
True or False: Judgment plays an integral role in cost accounting - ANSTrue
T/F: estimating overhead costs for individual products plays an important part in the decision to
keep or drop a product - ANSTrue
, T/F: Divisional income is a yardstick for measuring performance of a manager who is
responsible for both revenues and costs - ANSTrue
Nonvalue-added activities - ANSactivities that do not add value to the product or service from
the customer's perspective
(These may be necessary activities in order to manufacture the product, but are considered
non-value because they are costs the customer is NOT willing to pay for. Managers want to find
these costs and eliminate them if possible)
True or False: We need to estimate manufacturing overhead because some overhead costs
may not be known until after the end of the month - ANSTrue
T/F: Some think the problem with a single OH rate or departmental OH rates is some OH costs
are fixed and reducing production will not reduce fixed costs - ANSTrue
Divisional income = - ANSDivisional revenues - divisional costs
Advantages of divisional income - ANS-easy to understand
-reflects the results of items under the manager's control
-summarizes the results of decisions affecting revenues and expenses
-makes for a comparison of other divisions within the organization
a detailed step-by-step analysis written for what needs to be done to make the product, each
activity is assigned an amount of time
T/F: Additional activities should be considered for accurate costing - ANSTrue
Cost-Benefit Analysis - ANSWhen a manager analyzes the perceived benefit from a cost
If the cost is greater than the benefit, the result is not good
Cost driver - ANSa factor that causes a particular cost to change as production increases or
decreases
(Ex: what drives the cost of electricity in your house higher? kilowatt hours used)
Time in Motion study - ANSgetting an idea of how much time each step in the process was
taking and how to make it more efficient
Two stage allocation - ANSthis process takes direct costs directly to the cost object and
allocates manufacturing overhead first to various cost pools and then second to the cost object
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